Bitcoin’s Price Drops Following $65 Million Hack

Bitcoin price has gone on a downward slide in the aftermath of a recent security breach of a large, Asia-based exchange which saw the hackers involved making off with total bitcoin amount valued at about $65 million.

The price of the leading cryptocurrency went on a plunge following the announcement by Hong Kong-based Bitfinex on Tuesday that it had lost 119,756 bitcoin to hackers. The amount converts to about 65 million in American dollars.

Trading, deposits and withdrawals were all suspended by the exchange following the attack. Bitfinex disclosed that it was cooperating with law enforcement on the matter and would provide more information once investigation is concluded.

The hacking incident sent bitcoin price crashing down by over 20 percent. The digital currency rebounded slightly in subsequently days, but price was still down about 12 percent on Friday August 5th, compared to a week earlier.

The slump in bitcoin price brings to mind the scenario that played out after the then-largest bitcoin exchange MT. Gox announced that it was hacked in February of 2014. Prices dropped 30 percent in that month and the Japan-based exchange filed for bankruptcy weeks after the breach.

Users may share in loss

Bitfinex is reportedly considering the option of spreading out the loss from the attack across its users. Those users who did not suffer any direct loss in the incident would also be impacted if such an action is taken. This conclusion was based on the exchange’s mention of a “socialized loss scenario” in a blog post it put up on Friday.

“In essence, (this is) a haircut for all users on their deposits,” CryptoCompare founder Charles Hayter told CNBC. “To what degree depends on the devil in the details and what the total capital held by BitFinex is.”

Hayter noted that Bitfinex users whose accounts were not hacked will, understandably, feel slighted to be made to cover losses elsewhere. He noted the usual practice was for exchanges to cover losses, but then none of such has been on the same scale as this one.

Investigation ongoing

Bitfinex is currently trying to find out what went wrong and has asked the community to exercise patience while it does this.

The exchange had announced a partnership with BitGo last year as part of efforts to beef up security on its platform. Bitfinex uses the Palo Alto, California-based company’s multiple-signature security to store deposits online for faster confirmation and withdrawals.

Most exchanges store the most part of deposits offline, making only a fraction available online for immediate withdrawal.

BitGo, which also provides security system to other exchanges, said it has yet to discover a breach of its systems in the Bitfinex attack. The company stated its software was working as it should. It said further investigation is being made into the security breach.

Bitcoin to rebound

This latest attack is thought possibly the second-largest on a bitcoin exchange after that of MT. Gox. Bitfinex handled the most USD-denominated bitcoin transactions over the past month, as reported by bitcoincharts.com. The amount stolen is said to represent about 0.75 percent of bitcoin in circulation and possibly up to 30 percent of the exchange’s capital holdings.

It is feared that this security breach could further reduce confidence in the cryptocurrency. However, Coinbase co-founder Fred Ehrsam expresses the hope that bitcoin price will rebound from the decline brought on by the attack.

“Yes — it is a large breach,” Ehrsam told Bloomberg in an email. “Bitfinex is a large exchange, so it is a significant short-term event, although Bitcoin has shown its resiliency to these sorts of events in the past.”

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